Another small-cap name that is flying today is Reed’s (NASDAQ:REED). Indeed, investors in REED stock are seeing gains of approximately 15% at the time of writing on very heavy volume. Investors seem to like a key product announcement the company made today.
Reed’s is a beverage manufacturer, focused on non-alcoholic ginger beer. Reed’s ginger beer has previously only been available in glass bottles. However, the company announced today that it is making the switch to aluminum cans. This move is something investors have cheered in a big way, as buying pressure buoys various small-cap stocks today.
Reed’s market capitalization post-rally today sits at around $100 million. This market cap is significant when one considers the company’s financials. Reed’s sales have consistently remained in the $34 million to $46 million range since 2013. This company also hasn’t booked a profit over the past decade. It’s a business that has continued to struggle, evidenced by a stock price that remains near a decade low.
But that’s neither here nor there.
In today’s market, any company with a short interest ratio around 20% is being targeted as a potential short squeeze opportunity. REED stock is one such name. Accordingly, it appears this announcement, in combination with frenzied retail investor activity, is driving shares higher today.
Let’s take a closer look at this announcement.
REED Stock Surges on New Product Format
Today’s announcement of Reed’s move into aluminum cans for its flagship ginger beer product is certainly bullish for investors. The company hopes to increase penetration in existing retail channels, and expand its offering to “mixer sets, liquor stores, and on-premise channel accounts across the country.” Anything that can help get this company’s revenue above its historical range would be a good thing.
It’s a growth investor’s market today. And Reed’s growth potential looks much more promising today than it did yesterday. This is a good thing for shareholders in REED stock.
However, today’s outsized move in REED stock needs to be balanced with the context of what’s going on in the market today. There’s no doubt that some over-exuberance is buoying small caps right now. Those with questionable financials or a real lack of historical growth are being bought at the expense of traditionally high-growth names.
Yes, REED stock does carry a relatively high level of short interest. However, there’s an argument that can be made that this level of short interest is warranted. Buying a stock because it’s heavily shorted is not a strategy I’d recommend investors consider, now or ever.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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